Right now, the euro is being steered by two forces: inflation expectations and the European Central Bank's (ECB) policy path. All eyes are on the latest forecast of 2.0%–2.2%, i.e., a narrow range that could make or break the single currency.
Here's why this threshold is so critical: the regulator's bullseye is exactly 2%. A reading between 2.0% and 2.2% suggests that inflation is almost tamed. But the word "almost" really matters. Sticky underlying pressures, fueled by volatile energy costs (the Iran situation being a perfect example), mean the job isn't done yet.
Investors are currently laser-focused on the key gauge: the Core Harmonised Index of Consumer Prices (Core HICP), which strips out volatile food and fuel expenses. If this figure climbs above 2.2%, the market will view it as a flashing red light indicating that tighter conditions are here to stay for the long haul.
Most market watchers agree that the central bank will press a pause button at its April 29–30 meeting, leaving the deposit rate at 2.00%. This level is considered restrictive enough to cool the economy without slamming the brakes too hard.
Christine Lagarde and the Governing Council are likely to wait for two things: a clearer picture of how previous rate hikes have filtered through the GDP, and a final resolution to the Middle East crisis—which directly impacts the price tag on EU imports.
For EURUSD, it all comes down to a seesaw effect:
Hotter side (inflation > 2.2%). The market will start betting on another ECB monetary tightening in June. This would light a fire under the euro, potentially sending EURUSD to 1.1950 or beyond.
Cooler side (inflation < 2.0%). Whispers of policy easing will surface, weighing on the euro and possibly dragging the pair back down to test support at 1.1670.
Europe's heavy dependence on gas and oil imports means that any new trouble in the Strait of Hormuz would instantly scramble inflation forecasts. If oil spikes back to $100, the HICP outlook will be revised sharply higher—tying the ECB's hands and ruling out any rate cuts for the rest of the year.
From a technical standpoint, the most likely scenario for the pair is a rebound from 1.1772, followed by a retest of the 1.1742 support zone.
The ultimate recommendation is to sell EURUSD from 1.1772. Lock in profits at 1.1742. Place Stop Loss at 1.17910.
Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow entering a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
